As the market struggles to hold 1,500, the spot CBOE Volatility Index (VIX) and futures continued to charge higher, making those who are short volatility cry. Spot VIX continued to move higher another almost 9%, where futures were up only fractionally in comparison. Volatility ETF (NYSEARCA:VXX), 2x ETF (NASDAQ:TVIX), and alternative 2x ETF (NYSEARCA:UVXY) all saw gains as the market continues to lose ground. Yesterday on the sonar report (here), I mentioned a large block seller of the March 15 strike calls, which were sold collecting .95 some 34.5K times. Today, that trader is not happy, as the ask is now looking for 1.80 for these calls, and would equate to a 2.25M+ loss for this one trade from yesterday. Today, VIX pits did see some call buying, with large blocks of the 20-25 strike March call spread going off 25K times. Other premium buyers were March put buyers, believing the volatility is temporary and is looking to capitalize on the market stabilizing.

Options Paper:

Option paper remained decent on Thursday, but again was masked by the 400K+ options traded by Johnson & Johnson (NYSE:JNJ) as part of the typical dividend steal. Active names today S&P ETF (NYSEARCA:SPY), S&P Index ^SPX, Russell ETF (NYSEARCA:IWM), and ^IWM were all trading above average volume, with overall paper remaining bearish. Apple (NASDAQ:AAPL) and NASDAQ ETF (NASDAQ:QQQ) were also active but again, saw heavy bearish paper. Two names I flagged on Twitter today really struck me as interesting. Bond ETF (NYSEARCA:TLT) on a day where bonds were rallying saw heavy buying of the April 114 strike puts more than 20K times. This, of course, would imply bonds will continue to fall prior to April expiration, which is typical with a bull market. The other trade I flagged today was a large 1:2 ratio spread in the High Yield Bond ETF (NYSEARCA:HYG). HYG saw one trader today buy 30K of the April 92 strike puts and at the same time, sell 60K of the April 89 puts. This trader spent 3.15M buying the 92 strike puts, and collected 2.25M on the sale of the 89 strike puts. Net net this cost, the trader nets 900K in premium and locks up an incredible 267M in buying power to be short the extra short strike of the 89 puts. This trade makes a ton of profit if HYG trades below 91.10 on April expiration but above 89.00, making up to 2.1M in total profit. HYG typically only trades 14K contracts total a day, and today, was more than 6x average daily volume, with puts outnumbering calls 140 to 1.

I have many earnings trades in play today. Aruba Networks (NASDAQ:ARUN) and Hewlett Packard (NYSE:HPQ) both report after the bell today. ARUN has been under some heavy put action of late, and the stock has been punished despite all the analyst upgrades. HPQ has been on a tear of late, and large weekly 17.5 strike call buyers came out in full force, even as HPQ has outperformed the broader index by almost 10%. I'm not inclined to believe either of these stocks go higher after earnings, and thus did creative calendar/diagonal trades on both. Again, the consistent bear in me even went as far as to short Abercrombie & Fitch (NYSE:ANF) after price action and put activity had me putting on shorts in this name as well. ANF, of course, reports before the bell tomorrow morning, and weekly IV is sky high, so diagonal and calendar trades make a ton of sense right here. Options activity in all these names was very heavy, with ARUN seeing bullish, HPQ seeing neutral, and ANF seeing bearish paper.

Trades Today: Closed EOG long (crying), short ANF, short HPQ, sold more of SPY hedge.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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